Regional Cooperation Agreements in Economic Development

By: Brett Common

Competition between countries, states, and cities for talent, jobs, and businesses can be a very healthy activity. It incentivizes governments to formulate policies that promote economic growth and improve local assets such as workforce development programs, quality of life enhancements, infrastructure investments, and efficient regulatory and tax structures.

But competition for jobs can also lead to inefficient policy choices, namely counterproductive intraregional competition, commonly referred to as “poaching.” In these situations, communities deploy some of their resources, usually in the form of finance or tax incentives, to lure companies away from jurisdictions next door. This type of behavior is also common with the attraction of new companies, where cities within the same region try to undercut their neighbors to make sure a business lands within their own respective borders.

Short-sighted competition between neighboring communities leads to a “silo effect” – a lack of communication and cooperation – where intraregional economic development becomes an unnecessary zero-sum game between players that should be on the same team. It ignores the regional nature of economies and results in merely a “reshuffling of the deck chairs,” or the shifting of jobs versus the creation of new ones. There are numerous examples of companies moving only a few miles into the suburbs to the detriment of urban employees. These transfers can go both ways, however.

Rather than continue unproductive local competition that can lead to detrimental economic and fiscal outcomes, cities, counties, economic development organizations, and other community stakeholders can commit to regional cooperation.

Developing a regional framework that focuses on a clear, cohesive, and unified economic development strategy projects a positive business environment to outside firms while encouraging the expansion and retention of existing businesses.

This publication will highlight proactive regional economic development programs and agreements designed to share information and promote integrity between regional jurisdictions. It will then conclude with key take-aways and an example of an agreement currently in operation.

Grants and Revenue Sharing

Perhaps one of the most well-known regional economic development agreements is the ED/GE, or “Edge,” program in Ohio’s Montgomery County, established in 1992. The ED/GE program combines two separate funding mechanisms that promote shared growth within the county. In 2011, the ED/GE program was renewed to run through 2019.

The ED (Economic Development) fund disburses grants to localities to finance economic development projects. The amount of funds available in the ED fund is determined annually by the Board of County Commissioners; in 2012, $3 million was available to be disbursed. The grants are awarded twice per year. Projects that take precedent in attracting ED funds strive to expand the local tax base, involve collaborative efforts involving two or more local communities, and provide infill growth, among other criteria. Furthermore, ED funding goes to projects that “discourage interjurisdictional relocation.”

In order to determine which communities will be awarded ED funds, fund administrators visit each community that has submitted an application for funds. Each applicant community is able to present its case for funding, and then the officials rank each project, with the top performers receiving grants. The funds are distributed through a reimbursement process, with strings attached to ensure that the projects create a certain percentage of jobs promised. The process takes approximately six weeks.

The GE (Government Equity) fund allows localities within Montgomery County to “share some of the economic benefits resulting from new economic development.” The fund is made up of contributions by localities based on a growth contribution formula that takes into account population and increased income and property tax revenues. Then funds are distributed to each community to be used to pursue economic development opportunities as well as to promote regional economic growth.

Every three years, there is a “settle-up” provision that accompanies the ED/GE program to ensure equitable fund distribution and revenue sharing. In short, “if the member jurisdictions’ contributions to the GE fund exceed the amounts it received from the ED fund, the jurisdiction is entitled to an allocation in the amount of such excess from the ED Fund balance.”

The ED/GE program fosters healthy competition and cooperation among the jurisdictions of Montgomery County using financial incentives to promote regional growth. While there are many locations where tax revenue sharing is not politically viable, Montgomery County demonstrates that it can be a bonding agent that ties an area’s growth to the region, not necessarily individual jurisdictions.

Through the ED/GE program, Montgomery County has attracted subsidiaries of companies such as Caterpillar, Payless Shoes, and General Electric.

Code of Ethics

The Metro Denver Economic Development Corporation (MDEDC) requires the totality of its members to sign a Code of Ethics that outlines rules to prevent unhealthy competition between Metro Denver communities. The Code was devised in 1987 by a group of eight economic developers (nicknamed the “Crazy 8” since regional cooperation was such a crazy idea at the time) led by Tom Clark, who now serves as the Chief Executive Officer of the MDEDC.

The catalyst that brought Denver communities together was the economic malaise of the 1980’s. At the time, the Denver area was strictly an oil and gas town, but when the sector entered a down cycle, the whole area struggled. The area needed to work together to bring businesses to the area that would help to diversify the regional economy. Thus, the Code of Ethics was born. The Code was paired with an unlikely enthusiasm for the idea since the whole region’s back was against the wall.

There is a strong commitment to regional cooperation throughout the Code of Ethics. Members of the MDEDC are strongly encouraged to “sell Metro Denver first and our individual communities and projects second.” Selling against other localities within the metro area in order to attract prospects is explicitly discouraged and members are forbidden to solicit another member’s prospects.

In the Code of Ethics, information sharing and transparency are paramount. If a company intends to move from one locality to another within the region, members are expected to contact the affected community and inform them of the potential move. This is not to be taken lightly, as a “violation of this commitment shall be viewed as the single most serious breach of our membership pledge.” Also, if individual members find that they are not able to meet the needs of a certain business prospect, they are encouraged to “communicate with our fellow members in an effort to meet the company’s needs elsewhere in the Metro Denver area.”

The response by prospective companies looking to do business in the Denver region has been tremendous. According to Laura Brandt of the MDEDC, Metro Denver’s regional-centric approach to economic development “blows companies away.” Companies and site selectors are consistently surprised that the region actually does operate regionally. They also appreciate having a single point of contact – the MDEDC – which allows one unified message to be portrayed to any business interested in the region.

Denver’s regional approach to business attraction and retention underscores the fact that companies are more likely to look at a metro region as a whole, as opposed to individual cities and municipalities. The method has set an example for other regions to follow. For example, after a trip to Denver, leaders from Northeast Indiana signed their own Code of Ethics in 2011.

The MDEDC currently counts 70 cities, counties, and economic development organizations as members.

Retention and Anti-Poaching

After a tumultuous period in the early 2000’s, Cuyahoga County became a charter government in 2009, and in 2010, Ed Fitzgerald was elected to become the first executive of the county. Prior to Fitzgerald becoming county executive, the communities within Cuyahoga County operated in silos, competing against one another for businesses in what turned out to be a zero sum game. To encourage regional cooperation within the jurisdictions of the county, Fitzgerald and his staff drafted the Cuyahoga County Business Attraction and Anti-Poaching Protocol.

Edward Jerse, the Director of Regional Collaboration, was tasked with visiting all of the county’s communities to sell them on the idea of regional cooperation. In order to reach a consensus, the county started with a relatively modest agreement to avoid any widespread discontent among the neighboring communities. The idea was that if small steps could be taken to get an agreement off the ground, it could open the door for more ambitious regional cooperation in the future. Cleveland came on board midway through the negotiations, which gave the agreement a big boost.

There was some initial hesitation to sign such an agreement in some of the county’s jurisdictions. Some communities feared they would lose their distinct identity within the region. Also, a rift between higher-income, outer-ring (Cleveland) suburbs and lower-income, core neighborhoods formed over the issue of a potential tax revenue sharing component to the agreement. Some of the lower income communities advocated a revenue sharing system; for the outer-ring suburbs, revenue sharing was a deal breaker. Revenue sharing was subsequently left off the Protocol, which incentivized more communities to sign on.

The Protocol became effective in September of 2011. Currently, fifty-four of fifty-nine communities have signed on to the agreement, which comprises 96% of the population of the county. There are four basic principles on which the Protocol lies:

“Facilitate interactions between the county and the communities to promote economic development;

Express the commitment of the participating communities that they will not actively pursue the re-location of a business that has not indicated that it is considering a move from its current location in another participating community; and

In instances where a business is exploring a possible move, establish procedures to balance the interests of the business’ home community and other participating communities.”

With a $100 million economic development fund established this year combined with the cooperative Protocol, there has been much positive feedback emanating from the region recently. Prospective companies view the region more favorably as a business destination, and the area’s mayors have been pleasantly surprised with the level of information sharing taking place within the county

Guidelines for Economic Development Professionals and Organizations

The East Bay chapter of the California Association for Local Economic Development (CALED) developed a Code of Ethics, which the East Bay Economic Development Alliance (East Bay EDA) – a public/private partnership serving Alameda and Contra Costa counties – adapted to create guidelines for economic development professionals and organizations. The membership of the East Bay EDA includes the cities in Alameda and Contra Costa counties as well as businesses, universities & community colleges, and community groups.

The guidelines are designed to strengthen regional accountability between cities in the neighboring counties, explicitly stating “businesses will be much more willing to invest in a region that works together to retain and attract businesses.” There are two pillars on which the agreement rests:

“Responding to business inquiries/leads from businesses already in the East Bay; and

In-state/East Bay marketing programs”

As in the other examples highlighted in this publication, the first pillar of the East Bay guidelines encourages information sharing between communities. The guidelines not only attempt to retain companies in the region, but also the state: “If it is determined that the business cannot be retained in its resident city/region, the information should be passed on… to see if the business can be retained in the East Bay, then the Bay Area, Northern California and finally the State of California.” If the city cannot meet the requirements of the business, then federal or state funding can be introduced as an incentive.

The second pillar of the East Bay guidelines concerns keeping the peace when marketing your community to outside firms. Marketing materials should not highlight the negatives of other communities or jurisdictions within the region or the state: “mud throwing stains the thrower as well as the target and denotes a lack of professionalism.” The focus is on promoting the positives of the region, differentiating it from out-of-region or out-of-state locations.

The East Bay EDA shows that an existing regional cooperation framework can be tailored to fit the needs of a local region. Adapting already existing guidelines can reduce the administrative burden of creating an agreement from scratch. It also allows regions to shop around for an agreement that makes the most sense for its needs.

Key Take-Aways

The examples above are intended to serve as a snapshot of different approaches to regional economic development agreements that promote cooperation and regional integrity. As always, the examples are not one-size-fits-all. Each region has its own unique economic characteristics, which need to be accounted for when approaching regional agreements and cooperation.

While these examples may not be directly transferrable, we can infer some key ingredients of the agreements:

- Information Sharing and Transparency are Paramount

One ingredient included in all of the regional agreements is either an explicit or implicit expectation of information sharing. This especially works well in Denver, which has a unique history of exemplary regionalism. Information sharing – while respecting individual prospect confidentiality – includes notifying an affected community if a company in its jurisdiction has expressed a desire to move. It also includes informing other communities within the region if a company would like to locate in your jurisdiction, but unfortunately your city or village doesn’t have the facilities or land to accommodate the firm. Giving other local communities a chance to land the company can continue to add to the vibrancy of the region.

- Combine Anti-Poaching with Retention

When Cuyahoga County was developing its regional agreement, it was intended to be an “anti-poaching” document, designed to stem the pervasive competition between localities to steal companies from one another. Though this was a worthy goal, “anti-poaching” as a term didn’t sound too inviting, and mayors expressed reservations. Thus, the “anti-poaching” agreement was retooled as business attraction and retention agreement with an anti-poaching component. Attraction and retention practices should be the overall focus, and then adding policies that discourage competition in bad faith can be pursued.

- Regional Agreements Should Endure

It is important that regional economic development agreements endure. This means that once a regional agreement is signed, it is binding even if there is turnover in participating city councils or mayoral positions. The Montgomery County agreement dictates that communities stay in the agreement until the current program runs its course, currently 2019. Communities can still join at any time, but they can’t get out. This is understandable in light of the revenue sharing component. Other agreements, such as the one in place in Cuyahoga County, allow individual communities to exit the agreement at their discretion, but the agreements do not expire as the council members and mayors that approved the agreements exit office.

- Anchor City Involvement

The support by Dayton, Denver, Cleveland, and Oakland was crucial in moving the negotiation processes forward. There is bound to be an anchor city in your region. Whether it is as large as Denver or as small as Dayton, it is important to garner support from these centers of economic activity. Without their support, it severely hampers the region’s ability to lobby for a widespread buy-in from the region’s smaller communities. If the anchor city is not bound to act with integrity, it will be able to solicit bids and “poach” companies away from the other regional communities.

- Adapt the Agreement to Best Fit the Region

In the Cleveland and Dayton, Ohio regions, an agreement at the county level was most effective. In the case of Metro Denver and California’s Bay Area, it made more sense to develop an agreement at the economic development organization-level. There is no wrong way to construct such an agreement. It could be a bilateral agreement between two communities, an agreement within a whole county, or an agreement within the boundaries of a large city. As long as the agreement is committed to a healthy, cooperative region economically, it doesn’t matter at which level the agreement is devised. And, as a recurring theme of this publication has hammered home, buy-in on the part of participating communities is crucial.

- Start Slow

Regional cooperation is something that each community views with different opinions, some favorable and others hostile. This makes it vital that when formulating agreements, stakeholders walk before they run. Cuyahoga County is a perfect example. There was hesitation on the part of the individual communities, especially the different viewpoints of the outer-ring suburbs of Cleveland and core jurisdictions. Because of this, county officials crafted a modest agreement, where participating communities wouldn’t have to sacrifice too much policy sovereignty. This increased the chances of attracting a large percentage of the region’s cities and towns. Once an agreement gets off the starting blocks, discussions can continue to promote more integration, but in the beginning, a less formal and binding agreement may be needed.

Starting slowly may mean leaving revenue sharing on the shelf for a later time. The ED/GE program in Montgomery County is very unique in that it has a tax revenue sharing component to its regional focus. While it has been very successful in the context of the region where it operates, revenue sharing is not a requirement for regional agreements, nor is it realistic. Many communities would balk at any sort of revenue sharing component, particularly at the outset of a regional cooperation dialogue. No matter; as was discussed above, most regions will have to start modestly and erect an agreed upon regional agreement. Once it is in place, and more importantly, once it is in place and successful, then talks can begin on revenue sharing, if so desired.

Conclusion

When companies are choosing a place to do business, they usually don’t focus on a single city or jurisdiction; they usually target a region that has the components that make it the ideal fit, whether it is a highly educated workforce, a favorable tax environment, or some other combination of features. In a presentation to Milwaukee leaders, Tom Clark explained that “if you’ve got customers thinking of your region as a place, then you sell the region first and the individual place separate.”

Acting as a region first and individual communities second places a premium on having a single point of contact and an easy-to-understand process of finding the best place to do business. One of the most refreshing things cities or regions can offer to businesses is policy certainty, which is what these agreements offer. With the global economic environment as ambiguous and uncertain as ever, proactive regionalism might just be what the doctor ordered.

Brett Common is a research assistant for the Finance & Economic Development Program in the Center for Research and Innovation at the National League of Cities. He can be reached at common@nlc.org.

Thank you to Laura Brandt, Linda Gum, Edward Jerse, and Scott Peterson for providing additional information that supported the production of this publication.